Investment case

MaxCyte is the leader in the field of flow electroporation, with its instruments used widely by drug development companies, including all top ten pharmaceutical companies. It markets four different systems (GTx, STx, VLx and ATx), which use the same underlying flow electroporation technology but address different market segments. These are used to transfect cells: to assist drug discovery; manufacture products (eg antibodies, vaccines, and viral vectors); and develop cell therapies. Instrument sales also provided initial financing for the development of its proprietary CAR (Chimeric Antigen Receptor) platform, CARMA. The first internal CARMA programme, MCY-M11 in ovarian cancer and peritoneal mesotheliomas, entered the clinic in October 2018. MaxCyte has raised a total of c £65m gross since its March 2016 IPO, which has been used to expand the sales/marketing of its flow electroporation systems and invest in the CARMA platform.

Valuation

Reflecting the inherent differences of the revenue-generating operations and the nascent clinical pipeline, we value MaxCyte using a sum-of-the-parts model with a three-phase DCF for the life sciences business and a traditional rNPV for the potential milestones and CARMA platform. We have updated our model for the progress seen in the core business and the components of the rNPV of the CARMA platform (see details in the body of the note). Our revised valuation continues to use conservative assumptions and values MaxCyte at £260m, equivalent to 340p per share vs £195m and 341p previously. The core business is now valued at £157.6m and CARMA at £102.8m (vs £111m and £94m before).

Financials

In May 2020, MaxCyte raised £23.6m (net) to maintain its investment and consolidate its leading industry position. This should enable its service operations to maintain double digit sales growth (from FY21), driven by strong increases in use by cell therapy companies and bolstered by a rising stream of milestone payments as these well-funded clients drive their pipelines into and through the clinic. The CARMA platform is approaching the ideal time to be spun out and funded independently; we expect this to happen within 12-18 months. The strong cash position, coupled with a forecast EBITDA breakeven (ex-CARMA) in FY20 and profitability FY21, suggests a sound and comfortable financial runway.

Sensitivities

As a key enabler for many cell therapies, MaxCyte retains much of the associated upside potential but with considerably lower downside risk as clinical exposure to any one client programme is limited by the number, breadth, and diversity of its alliances. Milestone revenues are lumpy, but set to smooth as their frequency increases and the many recently signed relationships mature into the milestone generating clinical stage. The core business of selling and leasing flow electroporation equipment and selling related consumables is also fast-growing but has a far lower risk profile than its typical biotech company clients; although the ability to sustain its leading position vs the competition is a sensitivity. MaxCyte does however have a similar risk exposure with its proprietary CARMA pipeline, now in the clinic, but this will be financed independently from 2021.

MaxCyte: Entering the sweet spot

Cell therapies are expected to become a major new class of therapeutic agent; and MaxCyte’s unrivalled expertise with flow electroporation puts it right at the heart of it. The strategic decision a decade ago to invest in and develop this now key enabling technology is set to pay off. MaxCyte’s ExPERT equipment range, coupled with proven processing skills, has resulted in a stream of collaborative partnerships with cell therapies’ leading players. Potential pre-commercialisation milestones now exceed $800m. The proprietary CARMA clinical programme is also reaching a pivotal moment and is expected to become self-financing by end-2021. We have updated our model to reflect the progress achieved, and £23.6m raise, which results in a valuation of £260m, equivalent to 340p a share.

Innovation in pharmaceutical development tends to come in waves. Cell therapies are set to become a breakthrough in treating many intractable and life-threatening diseases. These highly novel treatments are now entering the clinic and generating promising data; not only in oncology but in other hard-to-treat conditions (eg sickle cell disease). However, cell therapies are not only highly technical in concept, they also involve complex manufacturing processes requiring intricate and demanding solutions. These production challenges are being addressed by companies that are highly committed, well-managed, and properly resourced.

MaxCyte is the clear leader of non-viral cell modification, with its proven flow electroporation platform able to transfect any molecule(s) into any cell efficiently and reproducibly. This, coupled with the proven ability to reliably and consistently manipulate cells for clinical purposes, is attracting the leading cell therapy players to strike collaboration partnerships. Ten clinical/commercial licencing deals have been signed, nine in the past 18 months, with potential pre-commercialisation milestones now exceeding $800m. Inevitably some development programmes will disappoint; however, even if only a small number were to succeed, these would transform MaxCyte’s medium- and longer-term revenues. Each non-exclusive partnership contributes to the overall value of MaxCyte’s commercial opportunity and provide investors with broad exposure to the cell therapy sector.

MaxCyte has employed its expertise to develop CARMA, its proprietary novel mRNA mediated CAR technology that overcomes several limiting issues seen with first-generation cell therapies. Lead programme, MCY-M11, is currently dosing the fourth cohort in a Phase I study in relapsed/refractory ovarian cancer and peritoneal mesothelioma. Despite possible COVID-19 impacts on such clinical trials, preliminary data is still expected during H220. The CARMA business is expected to become self-funding by 2021, with noted specialists Locust Walk appointed to explore the various, and most attractive, options to achieve this.

The £23.6m (net) equity raise enables execution of MaxCyte’s growth strategy and consolidation of its leading position. We update our model for the funding, FY19 results, and the strong core business performance, and also introduce an rNPV for the milestones to better capture their potential value. This increases our valuation to £242m ($315m) or 422p/share vs £195m (341p/share) previously. Core business recurrent revenues account for £83.8m (146p/share), risk-adjusted potential milestones for £48.6m (85p/share), and the CARMA platform for a more speculative £102.9m (179p/share).

Cell therapies and the next innovation wave

A look back at the history of drug discovery shows that there have been three major waves of innovation that have driven many of the advances in medicine (Exhibit 1). From the middle of the last century, medicinal chemistry was the main driver, and led to an acceleration in the development of small molecule drugs. The second wave saw the biological sciences come to the fore, typified by monoclonal antibodies, with more potent and targeted medicines developed. Genomics has supported the development of many biologicals and is also at the heart of the new wave of innovation based on advances in cell therapies – notably those using modified cells – leading to highly potent treatments that address very high unmet needs being developed. For many of these cell therapies that are produced ex vivo, it is MaxCyte’s technology that plays a key enabling role in their manufacturing process.

Exhibit 1: Waves of technological innovation driving medical advances

Source: Trinity Delta

The current wave can trace its roots back to the last century (as exemplified by stem-cell therapies, Exhibit 2 overleaf). Cell therapies, in the form of bone marrow transplantation and transfusion therapies, have been life-saving treatments for a long time. The real change has been the more recent ability to make specific genetic changes to cells, enabling the development of cell therapies that can be effectively cure chronic conditions or that target currently untreatable diseases. The development cycle for such novel therapies is iterative, with each generation building on the successes (and learnings from the downsides) of the last. The initial focus being typically on creating an effective treatment and subsequent improvements seeking to broaden indications, improve safety, reduce complexity, and optimise production.

This is already noticeable in haematological cancers and CAR-T therapies. Kite Pharma’s (Gilead) Yescarta and Novartis’ Kymriah are used to treat various B-cell lymphomas, where are showing impressive response rates of over 70%. There are obvious limitations with these innovative technologies, including severe adverse events (eg cytokine release syndrome) associated with treatment and the lengthy period required to treat a patient with these personalised therapies and their cost which will impact broad patient access. But these problems are being overcome, and we believe cell therapies will become core treatment options for oncologists.

Exhibit 2: Timeline for stem cell-based therapies

Source: Kimbrel et al. Nature Review Drug Discovery (2020)

We are only at the start of the innovation in cell therapy innovation. It is worth highlighting that the first cell therapies with genetic modifications, Yescarta and Kymriah, were first approved in 2017. The momentum behind the field continues to grow: The Alliance for Regenerative Medicine estimates that $21.8bn has been raised by companies developing gene and gene-modified cell therapies over the last three years. These companies, usually driven by proven and respected managements, are well funded to develop the next generations of treatments. Encouragingly, there has been a 75% increase in the number of clinical trials initiated with gene-modified cell therapies over the same period (Exhibit 3).

Exhibit 3: Clinical trials underway globally with gene-modified cell therapies

Source: Alliance for Regenerative Medicine

By modifying the selected cell, it is possible to change its characteristics to generate highly targeted and efficacious therapies. Much of the focus for such cell therapiesis on oncology, such as with CAR-T therapies, in which T-cells (currently from the patient) are modified, so that they bind to and kill tumour cells. However, cell therapies are also in development for other diseases areas; there is promising data, albeit early, from CRISPR Therapeutics/Vertex’s Phase I studies with CTX001 in sickle cell anaemia and β-thalassaemia, and data published by a Chinese group with patients with AIDS. These treatments all have the potential to effectively cure these chronic conditions.

To emphasise that we are at the start of the cell therapy revolution, Yescarta and Kymriah should be viewed as only first-generation CAR-T treatments; both are autologous CD19 CAR-T therapies for B-cell leukaemias with well-documented limitations. The next generation CAR-T therapies will build on these and may have:

• chimeric-antigen receptor (CAR) that target proteins other than CD19 (including those found on solid tumours);
• additional gene insertions (eg safety switches, or more than one CAR);
• gene deletions (eg PD-1 or TCR genes).

Such further genetic changes are designed to improve the efficacy and/or safety profiles of CAR-T therapies and broaden their clinical utility. Some companies, such as Allogene Therapeutics, are developing allogeneic CAR-T therapies; with the promise to be off-the-shelf products without the complex supply chain issues required for autologous therapies.

MaxCyte also has its own proprietary mRNA-based CAR platform called CARMA. It too is an autologous treatment, which can be produced within 24 hours in a hospital setting using its proven flow electroporation instruments. CARMA therapies have the potential to have more favourable safety profiles than most CAR-T treatments, while still being highly efficacious, as dosing can be managed more precisely (as with monoclonal antibodies). The lead programme, MCY-M11, is in Phase I development in ovarian cancer and peritoneal mesothelioma. We discuss the CARMA platform in more detail later in a subsequent report section.

Methods for producing gene-modified cell therapies

The most common method currently used to produce gene-modified cell therapies, including Yescarta and Kymriah, is viral transduction. However, due to limitations and issues associated with the uses of viruses, there are an increasing number of companies using alternate methods to manufacture these novel cell therapies. The limitations of viral transduction include:

• Technical considerations: such as delivering more than one payload efficiently into a cell (required for CRISPR-edited therapies), making gene deletions, inserting genes into specific sites;
• Immunological issues: virally transduced cells can induce an immune response so that repeat dosing of a cell therapy might not be possible;
• Cost of viruses: viral transduction is expensive, eg a Lentivirus batch sufficient to treat between two and ten patients costs c $500k;
• Reproducibility and productivity: the efficiency and inter- and intra-batch variability of cellular transduction using viruses remain issues;
• Complex processes: the manufacturing procedures required with viruses are understandably intricate, time consuming, and painstaking.

Exhibit 4 overleaf describes the main non-viral, gene-editing technologies. These methods of modifying cells need proteins, DNA, and/or RNA to be inserted efficiently and reproducibly into different cell types to produce gene-modified cell therapies. MaxCyte’s proprietary flow electroporation is ideal for these purposes and can be used in conjunction with all these gene-editing technologies ex vivo, as it can insert any molecule into any cell in a highly efficient and reproducible manner. These features are the reason why MaxCyte is a key partner for most of the leading cell therapy companies.

Exhibit 4: Non-viral genome editing technologies

Source: Trinity Delta, company websites Note: TALE = Transcription Activator Like Effector; PAM = protospacer adjacent motif, a DNA motif specific to each Cas9 protein; sgRNA = single-guide RNA

MaxCyte’s key role for cell therapies

Building over the past 20 years, MaxCyte has established itself as the preferred supplier of flow electroporation instruments to pharmaceutical and biotechnology companies globally. Unlike many achievements in these industries, this has not been due to serendipity. Whilst MaxCyte is clearly in the right place and at the right time, this was due to a conscious strategic decision. It has incrementally developed its technology platform such that it addresses the essential requirements of being accurate, reproducible, and consistent across all of the elements of the processes. Electroporation is neither new nor difficult, in fact an effective electroporation device can be made quite cheaply; however, the challenges lie in making this scalable, efficient, and appropriate for highly regulated pharmaceutical applications.

MaxCyte’s patented flow electroporation technology can effectively transfect almost any living cell with a wide variety of molecules and genetic material in a dependable, scalable, and efficient way. The understanding of the processes involved is arguably as important as the equipment, with MaxCyte having established an enviable reputation for its deep knowledge of growing and modifying cells. It is this combination of a unique technology and know-how for manipulating cells that has made MaxCyte the partner of choice for most cell therapy companies. MaxCyte’s global team of scientists, field application specialists, and sales personnel play a central role in applying this considerable know-how to understanding the issues faced by, and requirements of, the growing client base.

Exhibit 5: Schematic of MaxCyte’s flow electroporation process

Source: MaxCyte

MaxCyte’s instruments pass cells through a uniform electric field, which causes the permeability of membrane of the cells to increase temporarily and thereby allow the correct amount of the desired molecule(s) to enter the cells (Exhibit 5). Robust protocols have been developed and are optimised for more than 80 different cell types, with the ability to identify the optimum parameters for virtually all other cell types. It is this combination of flexible instruments and customised processes that helps cause minimal cell disturbance and typically results in cell viabilities and transfection efficiencies >90% (which exceed those of other transfection methods).

MaxCyte has four systems in its ExPERT range of flow electroporation instruments. A summary of the range and its functionality of the company’s three primary instruments is detailed in Exhibit 6:

• STx is for drug discovery applications such as protein production and cell-based assay development to support R&D from early-stage development through preclinical work. The capacity throughput is from half a million (0.5 x 106) to 20 billion cells (2 x 1010).
• GTx is designed for cGMP manufacturing of clinical cell and gene therapies, supporting later stage R&D development. The capacity is similar to STx, but it is supported by the FDA Master File and non-US equivalents.
• VLx is suitable for cGMP biomanufacturing. The capacity throughput is from half a million (0.5 x 106) through to 200 billion cells (2 x 1011). It is also supported by the FDA Master File.
• ATx is designed for academic institutes initiating the development of cell and gene therapies.

An important feature of the range is that it is possible to move seamlessly from one instrument to another as products advance through development.

Exhibit 6: Key features of GTx, STx and ATx ExPERT systems

Source: MaxCyte

For cell therapy companies, the GTx device is the crucial instrument. It is a closed, sterile system that is cGMP compliant, with, importantly, a Master File lodged with the FDA or similar documentation with other key country regulators. The Master File is a confidential dossier that effectively details, and validates, all the key parameters and processes employed. It facilitates the filing of any IND (Investigational New Drug) application with the FDA, as the cell therapy company only has to refer to the Master File instead of providing precise details on how cells are modified using flow electroporation. Also, the FDA has already approved the use of MaxCyte’s technology in many clinical trials, and the GTx instrument has proven to be a robust and reliable device in the clinical setting.

The ExPERT range was launched in April 2019 and is helping to drive greater adoption of MaxCyte’s instruments. It has the same underlying flow electroporation technology as previous systems but with added functionality to keep pace with the demands of its clients as they move through the clinic into commercialisation. The instruments now have touch screen controls, a bar code reader and various other features, also it has also been designed with lifecycle management in mind. Thus, it can continue to evolve and, over time, MaxCyte intends to add further platform improvements, such as integration with upstream and/or downstream sample preparation processes.

MaxCyte’s impressive roster of cell therapy partners

Over the last several years, MaxCyte has formed major partnerships with the leading cell therapy companies signing clinical and commercial licences (Exhibit 8 overleaf). The licence agreements demonstrate that MaxCyte is the partner-of-choice for cell therapy companies and should result in an accelerating stream of milestone revenues. These deals cover a range of genome editing approaches, as well as stem cell therapies, and allogeneic immune cell therapy programmes, demonstrating the versatility of MaxCyte’s technology. It is also worth highlighting that these companies tend to be well-financed and are highly motivated to progress their programmes through the clinic.

MaxCyte provides a key enabling technology to its partners. The successful development and potential commercialisation of gene-modified cell therapies rely on highly efficient and consistently reproducible transfection of cells, which the company’s flow electroporation delivers. On top of this, MaxCyte facilitates the often-challenging manufacturing processes that are required for cell therapies, by putting its deep knowledge of modifying cells and cell culture ex vivo at the disposal of its partners.

MaxCyte has had a very productive period for the signing of new commercial partnership agreements, with nine of ten major deals in the last 18 months. The rate of new deals is unpredictable as it depends in part on the progress and development of emerging cell therapy companies but, due to the company’s reputation and standing in the industry, the expectation is for many more. The total number of licenced programmes continues to grow rapidly (now over 100, Exhibit 7), which bodes well for the future. There are also companies, such as Sangamo, which are clients with programmes in the clinic, but without commercial agreements in place; if their programmes continue to advance well, they will also need to secure commercial licences.

The non-exclusive licence agreements allow MaxCyte’s partners to use its instruments for clinical and commercial use and tend to cover multiple programmes. In exchange, MaxCyte receives payments from the leasing of GTx machines, use of disposables, and can also earn material milestone payments and a share of commercial revenues as indicated in Exhibit 8. MaxCyte estimates that the NPV of each programme with a commercial licence is on average c $10m at the start of clinical development, after considering the development and commercial risks.

Exhibit 7: The growth in licenced cell therapy programmes

Source: MaxCyte, Trinity Delta Note: The graph does not include the latest commercial licence partnerships with Allogene Therapeutics and Caribou Biosciences.

Exhibit 8: An illustration of the structure of a representative commercial licensing agreement for a single product

Source: MaxCyte

From its existing commercial deals (Exhibit 9), MaxCyte could earn over $800m in pre-commercial milestones. As is typical with most licensing agreements, the deals are backend-weighted with the most significant potential payments to MaxCyte dependent on the programme reaching approval. We note that the >$800m milestone potential does not include MaxCyte’s share of post approval product revenues (lease fees from broad instrument roll-out, per patient consumable sales plus royalties and/or sales milestones). It is difficult to predict the timing of milestones, but MaxCyte has started to earn these payments as programmes progress into clinical development. In the coming years, the contribution from milestones should become more frequent, and hence less lumpy, and accelerate rapidly as it is expected to be the company’s fastest growing revenue source.

Promisingly, its partners are already reporting impressive, early clinical data:

• CRISPR Therapeutics/Vertex published data from the first sickle cell disease (SCD) and first β-thalassaemia patients treated with CTX001. In both patients very high levels of erythrocytes expressed the desired foetal haemoglobin (99.8% and 94.7%), and the β-thalassemia patient has not required a blood transfusion since treatment (nine months), nor has the SCD patient had a vaso-occlusive crisis (VOC) since CTX001 infusion (four months).
• Precision Biosciences published initial data from nine patients from the Phase I/IIa study of PBCAR0191 at ASH 2019. These data suggest that the allogeneic treatment is well tolerated with no GvHD (graft-versus-host disease), no dose limiting toxicities, and no serious cases of cytokine release syndrome (CRS > Grade 2). Four of the six NHL patients and one of the three adult ALL patients have achieved objective responses at the initial two dosing regimens.

These results are early but give us added confidence that MaxCyte will receive seven-figure milestones for programmes entering Phase II or III development, which will contribute to an acceleration in the company’s revenue growth over the next few years.

Exhibit 9: Commercial licences granted to date

Source: MaxCyte, Trinity Delta, Company websites. Note: * Casebia was a joint venture between CRISPR Therapeutics and Bayer, the latter is now managing the programme solely, and Bayer has opt-in rights at IND submission; NHL = non-Hodgkins lymphoma; ALL = acute lymphoblastic leukaemia; MM = multiple myeloma; CLL = chronic lymphocytic leukaemia; SLL = small lymphocytic lymphoma; AML = acute myeloid leukaemia; SCID = severe combined immunodeficiency; eHSC = engineered haemopoietic stem cells; eTIL = engineered tumour-infiltrating lymphocyte

From its existing commercial deals, MaxCyte could earn over $800m in pre-commercial milestones. As is typical with most licensing agreements, the deals are backend-weighted with the most significant potential payments to MaxCyte dependent on the programme becoming an approved and marketable product. We note that the >$800m milestone potential does not include MaxCyte’s share of post approval product revenues (broad instrument roll-out, per patient consumable sales plus royalties and/or sales milestones). It is difficult to predict the timing of milestones, but MaxCyte has started to earn these payments as programmes progress into clinical development. In the coming years, the contribution from milestones should become more frequent, and hence less lumpy, and accelerate rapidly.

Other uses of the ExPERT platform

The role and purpose of MaxCyte’s ExPERT platform is not restricted to the development of cell therapies, it can also play an important role during the development of all drugs or be used for bio-manufacturing. This has contributed to all top ten pharmaceutical companies, and 20 of the top 25, becoming MaxCyte clients.

MaxCyte’s instruments are used by these companies to transfect cells for use in physiologically-relevant assays or in bio-manufacturing. Depending on the needs of the client, it sells the STx, ATx and VLx ExPERT systems.

The STx offers a blend of flexibility and performance in a cost-effective package. For instance, cells can be transfected to produce a variety of assays (including ion channel, GPCR, reporter gene, and siRNA based) that are comparable to stable cell lines in terms of quality and performance, but in a fraction of the time and in physiologically-relevant cells. The STx can also be used to manufacture small volumes (gram scale for preclinical studies) of difficult to produce compounds, such as multi-valent antibodies, which is usually sufficient for research purposes.

The VLx can be used to produce multi-gram quantities of proteins, antibodies, viral vectors, and recombinant vaccines to cGMP standards. It is capable of transiently transfecting extremely large volumes of cells (up to 2×1011 cells in around 30 minutes), which can result in significant savings (at least an order of magnitude) compared to other transfection methods. Despite this, it is still a compact unit and simple to operate. The VLx can also significantly delay the need to establish a stable cell line for bio-manufacturing (see poster presented at Peptalk, January 2018). The VLx can be used to manufacture the desired biologic in a couple of weeks vs several months to establish a stable cell line, thereby saving a considerable amount of time and money during early development.

Both the STx and VLx, and their respective disposable processing assemblies, are sold primarily to biotechnology and pharmaceutical companies by a small sales team directly in North America and Europe, and through distributors in other markets. The sales team has more than doubled in size since its 2016 and we expect it will grow steadily as the opportunities for MaxCyte continue to expand.

One area of growth for MaxCyte is currently bio-manufacturing. The new biologics in development (eg bispecific antibodies) are more potent, such that smaller quantities of drug product are required for preclinical development, which can easily be manufactured by the STx and VLx. At the same time, the drug discovery field is so competitive that the time saved in not having to make a stable cell line could give a company a significant advantage over its rivals.

The average price of the STx is around $110,000, and we estimate that on average each generates more than $20,000 per annum in consumables sold per instrument. The installed base of all instruments (ATx, STx, GTx, and VLx) is now more than 320 instruments. The VLx is priced at around $450,000 and, as yet, only a few have been sold. The selling cycle for the STx tends to be quite short (around three to six months from lead identification to sale), with the VLx being understandably longer.

CARMA ready for independence

CARMA is MaxCyte’s wholly owned CAR technology platform. It was internally developed to capitalise on the company’s extensive cell therapy and transfection expertise. The platform has the potential to deliver personalised, autologous CAR therapies to both solid and haematological cancer patients in a way that is not possible with current autologous approaches. However, MaxCyte recognises that the characteristics and financial demands of the CARMA business are such that it is already a separate entity within MaxCyte and will be independently financed by 2021.

CARMA vs CAR-T therapies

CARMA therapies have strong potential for efficacy, but with manageable ‘on-target off-tumour’ side-effects. CAR-T therapies like Yescarta and Kymriah are designed to be engrafted into the patient, so that the CAR-T cells are permanently produced. This limits the potential protein targets for CAR-T cells, as even low levels of expression of the target protein in some normal tissues can lead to severe adverse events if treated with such virus engineered CARs. In contrast, CARMA therapies are mRNA-mediated and immune cells only express the CAR transiently. Therefore, it should be possible with CARMA to titrate the dose appropriately to manage off-tumour side effects, and give repeat treatments as necessary, as with monoclonal antibodies.

CARMA therapy does not aim to engraft immune cells, thus a preconditioning treatment of chemotherapy agents (cyclophosphamide and fludarabine) is not required, unlike with CAR-T therapies. As these chemotherapy drugs are associated with significant toxicities, it might be possible to treat some patients with CARMA that are too frail for standard CAR-T therapies. There are also plans to investigate whether the activity of CARMA may actually be enhanced by the use of preconditioning agents in less delicate patients and multiple dosing cycles.

The manufacturing process for CARMA therapies is also simpler, more rapid, and less costly than that for other autologous CAR-T treatments (Exhibit 10). Adoption of Yescarta and Kymriah has been hindered by their cost and the standard vein-to-vein times of two-three weeks (time between apheresis and treatment with CAR-T cells); both issues are linked to the manufacturing processes. The latter issue is particularly problematic, as some patients who are suitable for CAR-T therapy at the start of the process are too ill to receive the treatment by the time the CAR-T cells are ready for infusion. Notably, CARMA cells can be manufactured within 24 hours, potentially in a hospital, without any complex supply chain requirements.

The main reason for the CARMA manufacturing process being much shorter is that it does not require cell expansion. During CARMA manufacturing, all peripheral blood mononuclear cells (PBMCs) are transfected, including B cells, T cells and NK cells; whereas CAR-T therapies are made with only T cells, and require those cells to be expanded. The use of PBMCs clearly has benefits for the production of CARMA therapies, and it is possible that there are also clinical benefits having both T cells and NK cells expressing the CAR.

Exhibit 10: A comparison of the production processes for (a) current CAR-T therapies and (b) CARMA

Source: MaxCyte

The CARMA pipeline

MaxCyte is developing a pipeline of CARMA therapies. The lead programme, MCY-M11, is an anti-mesothelin therapy for ovarian cancer and peritoneal mesothelioma with intraperitoneal delivery and is in Phase I (Exhibit 11). A second CARMA therapy could enter the clinic in FY21, subject to independent financing, and is also an anti-mesothelin treatment but delivered intravenously for the potential treatment of colorectal and non-small cell lung cancer. Mesothelin is expressed by many solid tumours so MCY-M11 and the intravenous approach have considerable commercial potential; and, they also serve as a proof-of-concept for the CARMA platform.

Exhibit 11: The CARMA pipeline

Source: MaxCyte

The Phase I trial with MCY-M11 (Exhibit 12) is a dose-escalation study (3+3 design) in c 15 patients with ovarian cancer or peritoneal mesothelioma, who will receive three weekly doses of MCY-M11 delivered intraperitoneally, without any preconditioning treatment (eg cyclophosphamide or fludarabine). It has a primary endpoint of safety, with efficacy and the analysis of biomarkers as secondary endpoints, and is being conducted at National Cancer Institute, National Institutes of Health in Maryland, and Washington University in St. Louis in Missouri.

Exhibit 12: MCY-M11 Phase I clinical trial design

Source: MaxCyte

Dosing of the fourth cohort started in March 2020. There have been no adverse safety signals of concern observed to date. As with all novel therapies, it is extremely reassuring that the trial is progressing as planned, which suggests that MCY-M11 is well tolerated.

The first indication of MCY-M11’s efficacy will be provided at ASCO 2020, where the company will be presenting clinical data from the first three cohorts of the study demonstrating its safety, preliminary efficacy and feasibility of one-day manufacturing. Trial completion is expected during 2020 and management have confirmed that preliminary clinical data will be published before year-end. At this stage of development with a small dose escalation study, we would view any efficacy signal as promising. MaxCyte will be learning many lessons from the current trial, and there are various methods it could use to augment anti-tumour activity, such as by extending dosing or combining CARMA treatment with a PD-1/PD-L1 checkpoint inhibitor (eg pembrolizumab, Merck’s Keytruda).

Financing CARMA

MaxCyte has announced that it aims to have CARMA self-funded by 2021. The results of the Phase I study will undoubtedly be used to facilitate the process. MaxCyte established CARMA Cell Therapies as a wholly owned subsidiary at the start of 2020, and has retained Locust Walk (a global life sciences transaction firm) to find independent financing and/or partners to achieve the goal.

In recent years, the CARMA business has diverged from the rest of the company and there are fewer benefits of keeping MaxCyte as a single entity. In the past, MaxCyte gained valuable insights for its cell therapy business from going through the IND process and clinical start-up with MCY-M11. Also, the company has managed to satisfy the financial demands of the CARMA division, but the needs are accelerating significantly with more, and presumably later stage, clinical programmes in the coming years.

It is also important that CARMA Cell Therapies receives adequate funding to be able to compete against the many other, often very well financed, companies developing CAR therapies. This is particularly the case as CARMA is a very powerful and flexible platform, which could be used to deliver highly personalised, autologous CAR therapies with multiple modifications, including insertion of multiple CARs and changes to evade a tumour’s defences against the immune system. However, significant financing will be required to explore the full potential of the CARMA platform.

MaxCyte has indicated that it has no preconceived ideas on how CARMA Cell Therapies should become self-funded; it will consider the different options on their own merits. It is also likely that the independent financing of CARMA will lead to a better recognition of the technology’s value.

Sensitivities

MaxCyte is in an unusual position. Being a key enabler for multiple cell therapies, it retains much of the upside potential associated with the sector but with a considerably lower risk profile. It has a fast-growing revenue stream and, due to the number and breadth of its alliances, its core business has limited exposure to the clinical readout from any one client programme.

The cell therapies being developed by MaxCyte’s partners are all highly innovative and hence carry a higher than typical risk. But, MaxCyte’s exposure is limited by the number of partners, the diversity of technologies being employed, and the broad range of indications. It should also be noted that the gene-editing technologies are well characterised, and there is a growing body of clinical data suggesting that they can be safely used in cell therapies produced ex vivo.

The dynamics of the cell therapy market are such that many companies will look to challenge MaxCyte’s leading position in the field of non-viral modification of cells ex vivo. It already faces competition from companies such as BTX, Lonza and Thermo Fisher Scientific, and many others may look to enter the market. However, MaxCyte’s patent portfolio, trade secrets, and deep knowledge and estbalished client relationships are significant barriers to competition. In recent years, MaxCyte has strengthened its leading position by striking major collaborations with several key cell therapy companies.

The current COVID-19 pandemic is undoubtedly affecting MaxCyte operations, especially marketing, but the company has implemented business continuity plans to maintain its activities as best it can. It is difficult to predict the immediate impact on MaxCyte and its partners, but sales cycles for the life sciences division are likely to be longer than normal and some clinical trials with associated milestones might be delayed, which is expected to dampen near-term revenue growth. Fortunately, MaxCyte has a strong client base and most of its major partners are very well funded. Management still expects to report a break-even EBITDA (excluding CARMA investment and share-based payments) for FY20.

There could be longer term consequences of the COVID-19 pandemic, to which MaxCyte might have to adapt. For instance, it remains unclear how long travel restrictions will stay in place and some conferences that have moved online might not return to being physical events. MaxCyte’s ability to adapt to any new market conditions will influence how quickly it is able to grow.

The prospects for CARMA Cell Therapies, unlike the rest of MaxCyte, are sensitive to both the results from one trial (the Phase I MCY-M11 study) and the capital markets. The quality of the data from the MCY-M11 trial will be important in attracting potential partners and investors. The CAR field is very competitive; although CARMA has significant manufacturing advantages over other autologous therapies and the ability, in theory, to control on-target/off-tumour side effects. It will be the clinical safety and efficacy data that determine the market’s view of CARMA’s potential. This in turn will define how attractive the partnering and/or financing terms for CARMA Cell Therapies are.

Valuation

MaxCyte generates solid, and sustainable, revenues from technology licences and the sale of electroporation systems and disposables, which are boosted by less predictable and currently lumpier (albeit significant) milestones. On top of this, CARMA Cell Therapies offers considerable upside potential. To reflect appropriately the value of these differing valuation drivers, we have revised our sum-of-the-parts model. It retains a DCF (three-phase) calculated value for the life sciences business (using recurring revenues), but now includes rNPV valuations for the potential milestone revenue stream as well as the CARMA division (detailed in Exhibit 13).

 Exhibit 13: Sum-of-the-parts valuation model of MaxCyte

Source: Trinity Delta; Note: * Includes £23.6m net raised in May 2020 share issue

Our sum-of-the-parts model uses conservative assumptions and yields a valuation of £260m ($338.5m) or 340p per share, compared to £195m or 341p per share previously. The increase in valuation reflects primarily the considerable progress made by MaxCyte over the last year with the formation of many commercial licence agreements, which more than offsets the potential impact of COVID-19. However, the May 2020 equity raise has a dilutive impact on a per share basis.

There is also material upside to our valuation from commercial milestones and royalties, or from additional new partnership agreements. Our prudent approach indicates that MaxCyte’s current market cap of £128m is supported by the core business, ie our valuation of the life sciences division and potential pre-commercialisation milestones, which could total in excess of $800m.

It should be noted that there are considerable variations in market valuations for CAR companies (Exhibit 14). This reflects the highly competitive nature of the CAR arena, where views on the quality of a company’s technology and management can lead to greatly different valuations. MaxCyte has established a strong team to advance CARMA development with Claudio Dansky Ullmann, MD as Chief Medical Officer (see key personnel later). The first real indication of the platform’s potential should become apparent with the results from the MCY-M11 Phase I trial. We currently base CARMA Cell Therapies valuation on twice MCY-M11’s potential in ovarian cancer (the primary indication in the ongoing Phase I study).

It appears that there is limited appreciation of the potential of CARMA in MaxCyte’s market value at present. However, this could change rapidly this year subject to the data from the current trial, and MaxCyte’s success in finding partners and/or investors to fund the CARMA subsidiary independently.

Exhibit 14: Market cap and enterprise values of selected companies developing CAR therapies

Source: Trinity Delta, Company data;  Note: Market caps of companies at close on 22 May 2020.

Financials

MaxCyte’s revenues have now grown at a CAGR of 24.7% over the last five years, after sales growth accelerated in FY19 to 29.7%, delivering revenues of $21.6m. As in FY18, the growth was back-end weighted with sales up 36.1% in H219, due in part to the receipt of milestones connected to the clinical and commercial partnership agreements. This growth has been achieved while maintaining pharmaceutical-like gross margins, which stood at 88.4% in FY19.

Strong growth resulted in MaxCyte’s life sciences division achieving its maiden profit at the EBITDA level. Excluding CARMA investment, the EBITDA was $1.6m in FY19, compared to a loss of $0.8m in FY18. Importantly, profitability was achieved while still investing heavily in the technology platform; R&D (excluding CARMA) and sales and marketing spend grew by 24.4% and 16.8% respectively.

Despite the strong performance in FY19, we reduce our forecast revenue growth for FY20 from 20.5% to just 6% to reflect the expected impact of COVID-19. The core revenues derived from cell therapy companies are likely to be most resilient, as many of these companies are well funded and operating in highly competitive areas; but there will likely be a timing impact on clinical programmes which could delay milestones. Conversely, revenues from companies that use MaxCyte’s instruments in drug discovery and bio-manufacturing are expected to be impacted more heavily as the sales cycles get extended. In FY21, we expect currently that sales growth will revert to the historic levels of 20%.

Reduced revenue growth is also expected to have an impact on the company’s profitability in FY20, although we continue to forecast that MaxCyte will be breakeven at EBITDA level (excluding CARMA) in line with management guidance. EBITDA profitability should be achieved in FY21 while MaxCyte continues to increase its investment in the technology platform. CARMA spending is expected to be at a similar level in FY20 as in FY19, but with only a minimal investment forecast for FY21. The overall impact of the changes in our estimates are shown in Exhibit 15.

Exhibit 15: Summary of changes to estimates

Source: Trinity Delta

MaxCyte ended FY19 with a cash position (including short term investments) of $16.7m vs $14.4m at the end of FY18. The year-end cash reflected the cash generation by the life sciences division, an investment of $11.7m in CARMA and the £10m capital raise ($12.3m net) in March 2019. The company also repaid in full a credit facility of $5.1m in February 2019, entering into a new $5.0m credit facility in November 2019.

In May 2020 MaxCyte raised £23.6m, or $29.1m, (net) through a subscription for £17.8m (13.6m shares) and a placing for £7.3m (5.6m shares) at 131p per share, which represents a c 10% discount to the mid-price on the 24th April (the time of the signing of the term sheets).

The offering was led by two specialist life sciences investors, Casdin Capital in New York and Sofinnova in Paris. These investors will help underpin the plan to seek an additional listing on NASDAQ within 12-18 months. The value of having such renowned cross-over investors should not be underestimated, as they are more often instrumental in making such dual listings successful over the longer term. We view the plan to seek a dual listing on NASDAQ positively. A NASDAQ listing can be an important positioning point when seeking to form additional long-term commercial partnerships with the leading cell therapy players, which are typically US based and NASDAQ listed.

The additional funds will bolster sales and marketing efforts, production infrastructure, and development opportunities. The field technical support functions are particularly important as the number of licensed programmes continues to rise (now more than 100, of which 70+ are for clinical use). Other areas for investment include expansion of the product and technology offerings, optimisation of the supply chain, and development of other related assets to maintain the expected growth trajectories. This fund raise leaves MaxCyte in a strong financial position to execute its expansion plans, and the quest for independent funding for CARMA Cell Therapies remains on track.

Exhibit 16: Summary of financials

Source: Company, Trinity Delta  Note: Adjusted numbers exclude exceptionals. No new commercial licensing deals are included in our forecasts.

Company information

Contact details

MaxCyte Inc.,
22 Firstfield Road, Suite 110,
Gaithersburg, MD 20878,
USA
Tel: +(1) 301 944 1700

www.maxcyte.com

Key personnel